Listed Firms Improve Operations

Although in operation for more than five years, Vietnam’s stock market is still only playing a very modest role in supporting local companies and localities to mobilise funds. This is a result of the unexciting relation between securities supply and demand in the local market.

 

According to Dr. Ho Cong Huong – director of the securities company under the Bank for Investment & Development of Vietnam (BSC), financial knowledge in Vietnam is rather poor, leading to the low demand for securities. Currently, around 23,000 accounts have been opened at securities companies. Of this number, only just over 1,000 accounts are seen to trade frequently. The result is that average turnover of a trading day stands at around VND3 billion (US$190,000).

 

Regarding the supply of securities, on one hand the process of privatising state-owned enterprises is running very slowly, preventing a source that could create commodities for the market. On the other hand, there remain many inadequacies in tax, credit and the issuance of management policies. For these reasons, many joint stock firms which have enough conditions to list on the country’s stock exchange, dare not issue debt papers and list them on the local stock market.

 

Due to the small scale of the local stock market and the low number of firms listed on it, most local securities companies are faced with difficulties and challenges. Due to the current size of the market and low fees on securities trading, consulting for privatisation, IPO and corporate assessment, securities firms wouldn’t be able to pay off their operation costs if they didn’t carry out dealing and investment activities.

 

Financial difficulties have also created another problem for securities firms in that they are not able to expand their networks and provide more services. This explains why none of the 14 operational securities firms have a strong system of order-receiving agencies nation-wide.

 

According to economic experts, in order to improve the operation of the local stock market, Vietnam needs to focus on improving supply-demand relations, particularly enhancing knowledge for investors.

 

To be able to persuade investors to actively participate into the market, the first important thing is that they must clearly understand the rules of the market, investment risks and methods of investment. In order to achieve this goal, there must be free basic training courses about the stock market for students, corporate staff and cadres. Training courses via mass media, contests of effectively investing on securities and financial analysis are also needed.

 

In addition, the government needs to boost the process of privatising state-owned enterprises (SOEs). This will not only help create more commodities for the stock market but also considerably increase the number of investors participating in the market.

 

Privatisation of SOEs will help securities firms to earn more from consulting, value assessment and underwriting services. The government should choose a selection of large-scaled SOEs with sound financial situations and positive perspectives for privatising before listing them on the local stock exchange.

 

According to Mr. Huong, it is particularly necessary to have strong tax incentive policies to attract joint stock companies to float their shares on the market. From now to 2010, the government should apply a degressive tax mechanism for firms listing on the local exchange. Accordingly, 2005 will be a milestone year with highest tax incentive and by 2010 the government will remove all incentives.

 

Vietnam’s stock market must be built on the basic market mechanism and the operation of listed firms must obey international practices. Experts said Securities Law must be concrete, in particular strong punishments must be enforced for information violations and procedures for suspending issuance in order to protect real investors.

 

Regarding measures for reinforcing the operation of securities firms, the State Securities Commission needs to actively seek technical assistance from international organisations. This will help securities firms to rapidly modernise their operations and update and standardise the financial knowledge of their staff. The commission should encourage securities firms to enhance their financial ability via increasing registered capital. Securities companies should also be encouraged to expand their business scope.